Moody's downgrades Kenya credit rating to negative

Moody's Investors Service, has changed the outlook on the Government of Kenya's ratings to negative from stable.

Concurrently, Moody's has affirmed Kenya's B2 issuer and senior unsecured ratings. The negative outlook reflects the rising financing risks posed by Kenya's large gross borrowing requirements, which include amortization of external bilateral debt and the need to refinance a large stock of short-term domestic debt, at a time when the fiscal outlook is deteriorating due to the erosion of the revenue base and a debt structure that exposes Kenya's fiscal metrics to exchange rate and interest rate shocks.

While Kenya does not face acute financing pressures, the severe tightening of financial conditions will challenge the government's ability to meet larger gross financing needs without an increase in borrowing costs that would threaten medium-term fiscal consolidation efforts.

The rapid and widening spread of the coronavirus outbreak is creating a severe and extensive credit shock across many regions and markets. Weaker growth and larger fiscal deficits will further aggravate Kenya's already high debt and interest burdens.

The decision to affirm the B2 rating balances those pressures against fundamental economic strengths including a relatively large and diversified economy with high growth potential, and quite deep domestic financial markets.

It reflects Moody's expectation that Kenya will not participate in any debt relief initiative that requires the participation of private sector creditors, which could carry further negative implications for the country's rating, and more generally that Kenya will meet all its debt service commitments to private sector creditors.